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Holders of shares of pre-war companies: Shareholders or collectors?

The holders of share certificates of Giesche SA did not succeed in reactivating the pre-war company. But does that mean that share certificates issued by pre-war Polish companies are now only of value as collector’s items?

Under the legally final order of the Katowice Regional Court issued on 27 January 2014, it was held that the reactivation of Giesche SA by holders of pre-war bearer stock certificates was unlawful.

The ruling gives pause for reflection on the legal situation of persons who have come into possession of instruments issued by pre-war joint-stock companies. Do such documents still embody the rights of shareholders, or are they merely of historical interest? After all, Giesche SA is not the only pre-war company in Poland whose bearer shares are still in circulation. Such certificates may be found at antique shops or bazaars as well as online auction portals. The status of their acquirers is uncertain—it is not known whether they become shareholders upon acquisition of the certificates, or merely obtain a souvenir of a bygone era. Meanwhile, many holders of pre-war bearer stock certificates are attempting to reactivate the companies so that they can then assert claims against the State Treasury for damages for nationalised assets of the companies.

It should first be stressed that pursuit of damages in connection with nationalisation of companies’ assets is possible only on the basis of shares that were duly registered in the late 1940s. This requirement was introduced by the Decree of 3 February 1947 on Registration and Cancellation of Certain Bearer Instruments Issued Before 1 September 1939 (Journal of Laws Dz.U. 1948 No. 28 item 190). If a share was not registered by the strict deadline of 31 March 1949, it lost any force and cannot now serve as the basis for reactivation of the company or for assertion of claims for damages.

The problems arising out of trading in pre-war securities are a consequence of the gross negligence of the Polish authorities, particularly the passive attitude of legislators. After the Second World War, the assets of many companies were nationalised, but the companies themselves were not removed from the court registers. In most instances, nationalisation meant state assumption of ownership of the company’s assets without at the same time liquidating the company itself. In consequence, the companies often still appear in court registers, and bearer stock certificates issued by the companies before the Second World War are still in circulation. The government of the People’s Republic of Poland concluded numerous indemnification agreements under which damages were paid to foreign holders of securities, but Polish shareholders did not receive compensation for the loss of their property rights.

One of the prominent pre-war companies whose assets were nationalised after the Second World War was Giesche SA. In the 1960s the communist government paid damages to its sole shareholder, the US company Silesian-American Corporation. All of the bearer share certificates were transferred to the Polish authorities and were then sent for recycling, but ended up on the antique collectors’ market. In the view of the communist authorities, the certificates were merely of historical interest, but decades later, in 2005, they were used to reactivate Giesche SA.

The court held in 2014 that the reactivation of Giesche SA was unlawful. According to the oral justification delivered by the court, the persons who came into possession of the bearer instruments never acquired the rights embodied by the certificates. It appeared from the testimony of witnesses and from the wording of the sale agreements that the intention of the sellers was to transfer ownership of documents solely of historical value. The current holders of the bearer share certificates also acquired them for collector’s purposes from persons who did not have the status of shareholders. In consequence, these persons were not authorised to take measures seeking to reactivate Giesche SA, and the earlier ruling by the court permitting them to hold a general meeting of shareholders should have been set aside. In the court’s view, when the State Treasury sent the physical certificates for recycling, that did not mean that the State Treasury was selling the rights embodied by the shares or releasing such rights. To the contrary, over all those years the State Treasury remained the sole shareholder of Giesche SA, even though it did not retain possession of even one of the 172 bearer share certificates issued by the company prior to the Second World War.

In its justification from the bench, the court stated that under Civil Code Art. 921¹², transfer of rights to a bearer instrument requires delivery of the instrument to the acquirer. A person who acquires such a stock certificate from someone who is not a shareholder may acquire the rights embodied in the certificate if the acquirer acts in good faith (Civil Code Art. 169). Good faith should be understood here to mean a belief on the part of the acquirer, erroneous but justified under the circumstances, that the seller is authorised to dispose of the rights. In the court’s view, the successive acquirers of bearer stock certificates in Giesche SA did not act in good faith because they were aware that the sellers were not shareholders, and the certificates were only of collector’s interest.

This ruling represents a significant contribution to the long debate over trading in pre-war bearer stock certificates. It offers valuable guidelines for persons who have come into possession of securities issued before the Second World War and seek to exercise the rights embodied in the shares. Effective acquisition of such rights requires a transaction covering the rights embodied in the stock certificate (the regulations do not require written form), delivery of the document by the seller, and taking possession of the document by the acquirer. Moreover, in the case of acquisition of a bearer stock certificate from a person who is not a shareholder, effective transfer of the share rights requires that the buyer act in good faith. If good faith is disputed, the burden of proof is on the person disputing good faith to prove that the buyer acted in bad faith.

But this ruling is just an example of a much more serious problem: the continuing lack of unequivocal regulations addressing the situation of pre-war companies and the securities they issued which are still in circulation. The Act of 22 November 2013 Amending the Regulations Introducing the National Court Register Act, which extended the effectiveness of existing entries in court registers (specifically the former Commercial Register B) through 2015 is merely a technical operation postponing the necessity to introduce a regulation that truly addresses this issue. In this ruling, the court seemed to assume an impermissible legislative role by introducing the previously unknown terms “collector’s shares” and “collector’s acquisition.” This demonstrates without a doubt the scale of the problem and gives reason to consider whether the current regulations adequately protect the interests of the State Treasury as well as the interests of persons holding pre-war bearer stock certificates.

In many instances, the regulations governing trading in contemporary securities may prove inadequate to determine the status of persons disposing of pre-war shares. Unlike the well-known case of Giesche SA, recreating the post-war fate of many Polish companies is extremely difficult or impossible. But the bad faith of persons who have acquired securities issued before the Second World War cannot be assumed from the outset. To the contrary—as mentioned above, the burden of proof is on the party disputing good faith.

Reactivation of pre-war joint-stock companies in Poland is therefore still possible and legal. It is up to the Parliament and the competent authorities of the state to assure that this process is conducted in compliance with democratic standards, under the rule of law, including protection for rights arising under bearer shares. This is particularly important considering that unlike the owner of Giesche SA, shareholders of many pre-war companies were never paid any compensation for the assets taken over by the State Treasury, even though nationalisation of the assets of the companies was conducted in violation of the law in force at that time.